Existence of Double Taxation in Air Service

The presence of double taxation unnecessarily increases the cost of any commodity to consumers and it also reduces the level of profit of investors. It is observed that the issue of double taxation is prevalent in air service sector of Nepal. In international flight from Delhi to Bangkok or any other destination, Nepal Airline Corporation (NAC) charges the certain prices on air ticket and various forms of taxes such as security charges, airport development charges are levied on it as per the rule of Indian government. The money which is earned from this service is taken as income of NAC by Government of Nepal (GoN) and Value Added Tax (VAT) is charged on it which is not common in other parts of the world. Thus, there is existence of double taxation in this service because various forms of taxes are paid to Indian government as well as Nepal government. It reduces the profit level of the national flag carrier and all airline companies which are based in Nepal and operate international flights. Such kind of practice of charging tax above tax by the concerned agencies of both countries is against the principle of established Tax laws globally. Additionally, the users have to pay a higher price as the burden of double taxation is finally shifted to the passengers of this service. Therefore, this practice is condemned by the president of Board of Airlines Representative in Nepal (BARN) by issuing a press statement on 20th March 2014 which was covered in Republica, the leading national daily of Nepal.

In addition to this, Government of Nepal (GoN) has been charging 13 percent VAT on ground handling services which is also against the international practices because there is no provision of imposing any form of tax on goods and services within air side area. According to policy under Section IV of the International Civil Aviation Organization (ICAO), generally such kinds of taxes are exempted. Moreover, Nepal Airline Corporation (NAC) was never charged VAT on ground handling services when it used to carry passengers to 20 different foreign destinations in the past. The process of charging VAT on ground handling is not only monetary issue but it also causes negative impact in international relation as it is completely against the international principle and practice. Therefore, Nepal should avoid such unnecessary taxes and formulate policy which is internationally acceptable and better for bringing economic growth and prosperity.

(This article was originally published in Econity on 13th June, 2014).